–On June 28, 2011, the Archdiocese of Milwaukee files a lawsuit asking the Bankruptcy Court for a declaration that it’s $55 million Cemetery Trust fund is off-limits from creditor claims.

–On January 17, 2013, the Bankruptcy Court rules against the Archdiocese on summary judgment, and the Archdiocese appeals to the U.S. District Court.

–On July 29, 2013, the U.S. District Court reverses, ruling in favor of the Archdiocese, and the Official Creditors Committee appeals to the Seventh Circuit Court of Appeals.

–On March 9, 2015, the Seventh Circuit Court of Appeals agrees with the Bankruptcy Court and reverses the U.S. District Court. The Archdiocese begins its appeal process to the United States Supreme Court

James I. Stang, is legal counsel to the Official Creditors Committee in this Archdiocese case and in at least a half-dozen similar cases. Mr. Stang says the negotiating position of the Archdiocese of Milwaukee is always minimal-benefits to sex abuse claimants . . . until the Seventh Circuit Court of Appeals rules against the Archdiocese on appeal. Only then does the Archdiocese change its negotiating position toward providing substantial-benefits to sex abuse claimants.

What was the Archdiocese thinking?

–Did they not realize the Seventh Circuit might agree with the Bankruptcy Court?

–Did they not realize a reversal by the Seventh Circuit would put them in an incredibly weak mediating position?

–Why not immediately use the District Court’s favorable ruling as leverage in pursuing a mediated settlement?

–And why not commit the millions of dollars of professional fees to be incurred between July 29, 2013 and March 9, 2015, towards paying sex abuse claims instead?

In retrospect, these questions are difficult to answer.

“Overplay your hand,” is defined by Merriam-Webster online like this:

“to make a mistake because you believe your position is stronger or better than it really is.”

It looks like that’s what the Archdiocese did—and thereby missed a prime settlement opportunity immediately following the District Court’s favorable ruling.

A Plausible Rationale?

Perhaps a rationale for the Archdiocese’s position arises from the Committee’s demonstration at all times that it gives little, if any, credence to the District Court’s ruling. Here’s why such an explanation is plausible:

–Beginning on August 12, 2013, the Official Creditors Committee files motions, in both the District Court and the Seventh Circuit, seeking a post-ruling recusal of the U.S. District Court Judge and an order vacating his ruling.

–Mr. Stang explains that, after the District Court Judge issues its reversal ruling, the Committee discovers that the District Court Judge holds previously-undisclosed conflicts of interest: namely,

(i) the Judge’s parents, two sisters, a brother-in-law, an uncle, an aunt and his parents-in-law are all interred in cemeteries owned by the Archdiocese,

(2) the Judge purchased his parents’ burial rights under a contract that obligates the Archdiocese to maintain their crypts, and

(3) maintenance costs for his parents’ burial site are being paid by the Cemetery Trust funds in question in the lawsuit.

The Committee asserts that “a reasonable person would question the judge’s impartiality” in such a situation because the Judge “would be emotionally attached to the well-being of his family members’ resting places.”

The Seventh Circuit Court of Appeals reverses and vacates the District Court’s ruling on the merits. The Seventh Circuit also rules that the undisclosed involvements of the Judge’s close relatives in the case is “problematic.”

Nevertheless, the Seventh Circuit does not grant the recusal motion for the limited reason that the District Judge would no longer be involved in the case:

–since the Seventh Circuit “vacated the summary judgment order” and since the case “shall be assigned to a new judge on remand,” the Seventh Circuit rules that it “need not reach the merits of the Committee’s [recusal] motion.”

Ouch!!

Back to the plausible rationale: perhaps the seemingly-intractable mediating position of the Archdiocese (prior to the Seventh Circuit’s ruling) is a reflection of the Official Committee’s contrary position that is equally intractable? The Committee’s position is intractable, perhaps, because:

–The Committee views the District Judge’s conflict-of-interest position and the viability of his order on appeal with a degree of contempt.

–So the Committee gives no no credence, whatsoever, to the District Court ruling for mediation purposes.

Perhaps the Archdiocese had no choice but to either surrender (which it ultimately did after the Seventh Circuit issues its ruling) or see the fight through to a Seventh Circuit ruling? Regardless, the Archdiocese chose the latter (i.e., seeing the fight through) for better or worse . . . turns out it was for the worse.

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Published by mediatbankry

My name is Donald L. Swanson (please call me “Don”). I’m an attorney in Omaha, Nebraska, and am a shareholder in the law firm of Koley Jessen P.C., L.L.O. I’ve been practicing business bankruptcy law for more than three decades and represent all types of bankruptcy constituencies, including debtors, creditors, committees, trustees, and § 363 purchasers.
I have extensive mediation experience in both bankruptcy and non-bankruptcy courts. Moreover, I have a decades-long background in resolving multi-party disputes while representing committees and trustees.
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